Capitalized

Capitalized

Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year.

Capitalize

In accounting, to recognize expenses on long-term liabilities over a long period of time. This allows a company to spread out its expenses so they do not appear to reduce profits at any particular time. For example, a company may have a $1 million profit and a $1 million loan to acquire machinery for its factory. If it does not capitalize the loan, its balance sheet will show no profit for that year. Capitalizing the loan allows the company to recognize the liability over a certain period, usually the usable life of the machinery.

In Revenue Ruling 94-38, the IRS accepted the holding of Plainfield-Union that the appropriate test for determining whether an expenditure increases the value of property (and thus must be capitalized under section 263) is to compare the status of the asset after the expenditure with the status of the asset before the condition arose that necessitated the expenditure.

* If some or all of the expenditures are likely to be capitalized, prepare an analysis of the expected useful life or otherwise establish the wasting aspects of the benefits to prevent the creation of a nonamortizable asset.

While Treasury's published position was that INDOPCO did not change the fundamental principles for determining whether a particular expenditure may be deducted or has to be capitalized, many types of business expenditures became subject to greater IlLS scrutiny on the basis of the future benefit standard articulated in the INDOPCO decision.

The capitalization statistics for Q 12013 were as follows: 97.3% of the banks were Well Capitalized, another 1.3% were Adequately Capitalized, and less than 1.5% of the banks were either Under Capitalized, Severely Under Capitalized, or Critically Under Capitalized.

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